London midday: Stocks rise as BoE tackles Brexit
UK equities recovered slightly on Tuesday after the Bank of England eased rules for banks to encourage continued lending following Brexit.
In the BoE’s financial stability report, Governor Mark Carney said the central bank will reverse a decision it took in March to increase the amount of capital banks must hold against cyclical upturns in the credit cycle.
The BoE will hold the counter-cyclical capital buffer at zero until at least June 2017, which Carney said will reduce capital requirements for banks by £5.7bn and potentially free up an extra £150bn for lending.
"These efforts will mean we can all look ahead, not look over our shoulders," Carney said.
The Bank’s Financial Policy Committee said the current outlook for UK financial stability is “challenging” and there was already evidence that risks anticipated ahead of a potential Brexit had “begun to crystallise”.
The FTSE 100 rebounded from lows earlier in the session following the report.
"Financial markets were already nervous this morning, following news that growth in the UK’s services sector slowed to equal April’s three-year low," said Ben Brettell, senior economist at Hargreaves Lansdown.
"However, markets seemed to take some comfort from Mr Carney’s comments, with the FTSE rising into positive territory during the press conference and sterling regaining some of the day’s losses."
The pound dropped 0.93% to $1.3163 as data showed UK services expansion weakened in June to match April's 38-year low amid a darkening outlook and worries about Brexit. The Markit/CIPS UK services purchasing managers’ index fell to 52.3 from 53.5 in May, missing economists’ expectations for a reading of 52.7.
Meanwhile, a report by YouGov and the Centre for Economics and Business Research showed pessimism about the economic outlook almost doubled in the week following the June 23 Brexit vote to 49% from 25% the week before the referendum outcome.
Elsewhere, the eurozone services sector recorded a better-than-expected performance in June. June's services PMI reading rose to 52.8, beating the 52.4 from May and also the consensus forecast that this would be repeated for a second month, according to Markit.
Retail sales in the 19 countries that share the euro rose 0.4% in May, according to the latest figures from Eurostat. This was in line with economists’ expectations and marked the biggest monthly increase this year. Meanwhile, April’s flat reading was revised up to show a 0.2% increase.
In Asia, Chinese Caixin services PMI for June rose to 52.7 from 51.2, marking the fastest increase in 11 months.
On the company front, Legal & General slumped after Jefferies downgraded the stock to ‘hold’ from ‘buy’ and lowered the target price to 269p from 197p.
Standard Life was under the cosh after announcing it had suspended dealing in its UK Real Estate fund following a rapid increase in redemption requests. The announcement raised fears about the health of the commercial property market, sending stocks in the sector lower.
Whitbread dropped after Barclays downgraded the stock to ‘underweight’ from ‘equalweight’ and slashed the price target to 3,220p from 4,150p.
Supergroup rallied as Liberum upgraded the stock to ‘buy’ from ‘hold’ on valuation grounds, noting the stock is trading some 6% below its long-term average.
Housebuilder Persimmon declined even as it said it was still too soon to judge the effect of Brexit on the new homes market, adding that trading through the first half had been “strong”. Fellow housebuilders Berkeley Group, Taylor Wimpey and Barratt Developments were also in the red amid worries about Brexit.
Market Movers
FTSE 100 (UKX) 6,553.32 0.48%
FTSE 250 (MCX) 15,754.55 -2.25%
techMARK (TASX) 3,210.82 0.13%
FTSE 100 - Risers
British American Tobacco (BATS) 5,017.00p 2.29%
Royal Dutch Shell 'B' (RDSB) 2,108.00p 2.06%
Royal Dutch Shell 'A' (RDSA) 2,092.50p 2.02%
International Consolidated Airlines Group SA (CDI) (IAG) 382.50p 2.00%
GlaxoSmithKline (GSK) 1,632.50p 1.97%
Reckitt Benckiser Group (RB.) 7,650.00p 1.86%
National Grid (NG.) 1,123.00p 1.67%
Shire Plc (SHP) 4,791.00p 1.57%
Barclays (BARC) 138.65p 1.54%
Burberry Group (BRBY) 1,165.00p 1.48%
FTSE 100 - Fallers
Legal & General Group (LGEN) 176.40p -5.67%
Hargreaves Lansdown (HL.) 1,136.00p -4.70%
Berkeley Group Holdings (The) (BKG) 2,372.00p -4.55%
Land Securities Group (LAND) 938.50p -4.23%
Schroders (SDR) 2,254.00p -4.04%
Prudential (PRU) 1,210.00p -3.97%
Taylor Wimpey (TW.) 125.40p -3.91%
Associated British Foods (ABF) 2,572.00p -3.85%
Barratt Developments (BDEV) 374.30p -3.61%
Persimmon (PSN) 1,384.00p -3.55%
FTSE 250 - Risers
Sophos Group (SOPH) 214.10p 1.47%
Acacia Mining (ACA) 487.90p 0.89%
Millennium & Copthorne Hotels (MLC) 399.00p 0.88%
Hochschild Mining (HOC) 204.40p 0.74%
Cairn Energy (CNE) 217.40p 0.65%
JPMorgan Emerging Markets Inv Trust (JMG) 640.00p 0.63%
Tate & Lyle (TATE) 686.00p 0.59%
Centamin (DI) (CEY) 147.10p 0.55%
Supergroup (SGP) 1,234.00p 0.41%
Worldwide Healthcare Trust (WWH) 1,915.00p 0.26%
FTSE 250 - Fallers
Shawbrook Group (SHAW) 146.20p -9.42%
Aldermore Group (ALD) 112.80p -8.37%
AO World (AO.) 135.40p -8.08%
Allied Minds (ALM) 317.90p -7.88%
St. Modwen Properties (SMP) 239.70p -7.52%
Euromoney Institutional Investor (ERM) 812.00p -7.52%
F&C Commercial Property Trust Ltd. (FCPT) 102.40p -6.99%
OneSavings Bank (OSB) 189.90p -6.82%
Virgin Money Holdings (UK) (VM.) 238.00p -6.52%
Zoopla Property Group (WI) (ZPLA) 235.40p -6.51%